BOND FUND CARNAGE: Investors Stage An Exodus From Emerging Markets As Equities Suffer Collateral Damage

BOND FUND CARNAGE: Investors Stage An Exodus From Emerging Markets As Equities Suffer Collateral Damage

MATTHEW BOESLER JUN. 14, 2013, 10:31 AM 1,684 2

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It was another insane week for asset managers. After huge redemptions from bond funds last week – during which investors pulled the most money in a single week from Treasury funds ever – the onslaught of outflows continues. In the week ended June 12, bond funds as a whole saw $14.5 billion in redemptions, the second-largest weekly outflow from the asset class ever – for the second straight week in a row. BofA Merrill Lynch Chief Investment Strategist Michael Hartnett calls it “bond fund carnage,” writing in a note to clients that a “record $27 billion in 2 weeks shows complete washout in fixed income.” Hartnett also flags an “exodus from [emerging markets] assets” – emerging market debt and equity funds saw $9 billion in redemptions, the third largest weekly outflow on record – and calls the $9 billion of redemptions across global equity funds this week “collateral damage … on big ‘risk-off’ trade.”

Below is a complete breakdown of this week’s fund flows, via BAML:

Flows by Asset Class

Bonds: $14.5bn outflows (second largest on record for second straight week)

Equities: $8.5bn outflows (largest in 9 months) ($4.6bn via ETFs)

Commodities: $0.4bn outflows (18 straight weeks = longest on record)

Flows by Fixed Income Sector

$6.5 outflows from HY bond funds (2nd largest ever)

$2.5 outflows from EM debt (2nd largest ever)

$1.5bn outflows from govt/tsy funds

$1.7bn outflows from munis (largest in 2013)

51 straight weeks into floating-rate debt ($1.5bn)

Flows by Equity Region

$6.4bn outflows from EM equity funds (largest since Aug’11)

Our EM Flow Trading Rule will give a contrarian “buy” signal if we see another $8-10bn outflows next week or $11-12bn over nxt 2 weeks. Current 4w outflows = 1.9% of AUM (“buy” threshold is 3.0%)

Record outflows from real estate funds ($2.0bn) (but outflows dominated by IFGL and IYR ETF’s)

Small inflows to Europe ($0.2bn) and Japan ($0.3bn)

The chart below shows that there may be scope for further outflows from emerging market assets in the coming weeks, which would trigger the first contrarian “buy” signal in BofA’s emerging markets flow trading model in over two years.


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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